Saving money is always a good idea if you want to live a comfortable life and ensure your safety in any unforeseen emergencies. In real life, it is not always possible to have sufficient funds to cover all your needs. At some point in life, we all face financial challenges, but the good thing is that most of them may be temporary. When you don’t have money to cover your immediate needs, you can get a loan. However, you need to understand the type of credit you want to get because there are different types of loans out there – each catered for a specific purpose. Check out these 7 types of loans that can help you out of a tough financial position.
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1. Personal Loans
Personal loans constitute the broadest kind of loan category, and they have repayment terms that range from 24 to 84 months. When you get a personal loan, you can use it for anything except illegal activities or college education. These loans are commonly used for different things that may include the following:
– Weddings
– Vacations
– Medical treatments
– Emergencies
– Debt consolidation,
– Home renovations
– Relocating to a new place
– Automobile repairs
– Replacement of pricey electronics
There are mainly two types of personal loans which include secured and unsecured credit. If you choose the option of a secured loan, you should know that it is backed by collateral. This can be anything that will be recovered from you if you fail to repay your loan. Therefore, make sure you have a genuine reason for getting a loan to avoid causing more trouble in the already dire situation.
On the other hand, no collateral is required when you get an unsecured loan. Your signature is sufficient to secure your credit which is also known as a signature loan. However, unsecured loans are generally expensive since the lender will be taking more risk. You can apply for a personal loan online through a bank or credit union. The entire process is easy, and the borrowers with perfect credit can get excellent personal loans that come with favorable repayment options and low-interest rates.
2. Payday Loan
You can also get a payday loan to cover immediate needs while you wait for your next paycheck. A payday loan is a type of short-term credit that lasts up to your next paycheck. In other words, this loan is less than 30 days from the day of borrowing since you should repay it on or before your payday. This loan does not require good credit for you to qualify. Many people with bad credit who cannot get loans from formal lenders like banks prefer to apply for payday loans. All you need to apply for this kind of credit is proof of income or pay stubs, name, contact details, and address. You can apply for this credit online, and it takes a few minutes to be approved.
However, payday loans are expensive, and they charge high finance fees that can be around 400%. While you can roll over your loan to the next paycheck if you fail to pay during the current month, you will be tacked on to more fees. The interest rates charged are also exorbitant since the lenders are primarily concerned with the risk posed by the borrowers. Many people end up being trapped in debt cycles that are usually higher than the money originally borrowed. You need to be very careful when you choose this kind of loan since it can do more harm than good.
3. Auto Title Loan
You can use your car to get a loan from a lender within a short period. You can get the money with no hassles or credit checks when you work with an ideal lender. All you need to do is provide your vehicle as collateral and you can get the best loan. Many lenders offer title loans online; they do not consider your employment status, financial situation, condition of the vehicle, credit history, and you keep driving your car as well! However, other lenders have different terms, so you need to check before you apply for this type of credit. When you apply for a title loan online, all your questions are answered online, and there is no inspection of the automobile.
However, when you consider this type of credit, you should know that it is a short-term loan, and the repayment should be done within 30 days depending on the lender. However, you can negotiate an installment plan. The value of your vehicle will determine the amount of credit you can get. For instance, your limit is pegged between 25% and 50% of the value of the car as determined by the lender. A car title loan is a great alternative to traditional bank loans that come with stringent conditions like good credit history. The lenders typically charge a monthly fee of 25% of the total loan amount which means your annual percentage rate (APR) will be 300%. This makes the financing option costly since the rates are very high.
These are short-term loans which you should repay within 30 days or face the consequences. You also give the lender your vehicle’s title as collateral. These loans are predatory, and they also belong to the category of payday loans since they are expensive. Therefore, you should make an informed decision if you want to get this financing option.
4. Home Equity Loan
If your home has equity, you can use an equity loan also called a second mortgage. The equity is the portion of the home you own after repaying your original loan, and the bank is not involved in what you own. Your equity will secure your loan, and you can borrow up to about 80% of the total equity you have. You get the money as a lump sum which you can repay over five to 30 years depending on the terms and conditions with the lender.
If you want to find the equity of your house, you only need to subtract the mortgage balance from the home’s assessed value. For example, if you still owe $100, 000 on your mortgage and the home value is $225, 000, your equity is $125,000. This means that you will need to consider the 85% loan limit rule when you want to apply for a home equity loan. Your lender will determine the total amount you can get and the interest you will pay.
5. Online Loan
An online loan is just like a payday loan, and this is a new form of borrowing intended to make the entire process easy. Different online lenders offer loans to people with bad credits who cannot borrow from banks. You can apply online, and the lender can instantly tell you that your application has been approved together with the total amount you will get. All you need to do is complete an application online where you provide your details. Make sure everything is correct, or else your application will be declined.
Online lenders charge smaller service fees compared to banks since they do not have physical branches that can lead to overhead costs. An online loan does not require any collateral which can make it safer than getting a credit against your assets. You stand better chances of approval when you apply for an online loan. However, loans typically share many similarities although the lenders try to entice the borrowers. Every credit comes with interest, terms and conditions, and other elements like penalties. If you fail to repay your loan on time, your credit score will drop. The good thing is that you will not face foreclosure, or your vehicle will not be repossessed.
6. Family Loans
When you hit hard times, never underestimate the power of love. You can get an informal loan from friends or family members, and it is usually based on a verbal agreement. If you cannot qualify for a traditional loan from banks or other lenders, you can consider this option which seems to be straightforward. You don’t need any kind of credit rating or collateral to get the money you want. The approval process depends on the family member’s trust and their capability to give you the loan.
However, it does not necessarily mean that you take the person who gives you money for granted. Make sure you repay the credit as per your agreement to avoid ruining your relationship or friendship. If possible you can draft a loan agreement outlining the terms that include interest rates, repayment date, consequences for non-payment, and other factors that can bind you to the agreement.
7. Credit Cards
A credit card is an easy way to pay for all your purchases you may need, but you cannot use it for big items like movable assets. This payment option is now an integral part of many people’s lives since they use it for all their financial needs or payments for goods. Credit cards are easy to use, and they provide quick access to cash as long as you have not exceeded your limit for a certain period. The payback options are also convenient, and some credit card providers offer discounts and other unmatched deals. However, you should know that if you fail to use your credit card, it can be a debt trap.
The biggest benefit of a credit card is that it is easy to access credit whenever you want it. It works on a deferred payment basis implying that you use the card to purchase whatever you want and pay later. The money you use does not automatically move out of your bank account each time you swipe which can dent your balance. You agree with the credit card provider about the appropriate repayment date, and the payments come with interest. If you fail to pay your credit, then you will be charged interest which can affect you in the future. You can use your credit card to rebuild your line of credit which is a good thing you should cherish.
When you want to make a big purchase, but you don’t want to sink your savings, you can use a credit card to defer the payment. You can also consider the option of paying monthly installments to ensure that you don’t pay a lump sum that can deplete your savings. This option is cheaper than taking a loan from a bank that comes with many terms. You can use a credit card to purchase appliances like refrigerators, smartphones, or even television. Most credit cards consist of incentives and other offers designed to appeal to the emotional interests of the users. You can use it for cashback for point rewards accumulated, and you can redeem them to pay your outstanding dues or air miles. You can also get discounts from purchases made using credit cards like holidays, flight tickets, or large purchases.
A credit card comes with an interest-free period where you are not charged interest for using the card. Additionally, every purchase you make with your card is recorded which makes it easier to account for your expenses. You will get a monthly statement which you can use to track your spending or to create a budget. You will also get an instant alert for a purchase giving you the balance left. However, apart from all these benefits, many people often overspend, assuming that they are still low, which leads to the creation of a debt trap. While credit cards appear to be straightforward, they come with hidden costs you should know. These costs will rack in overall expenses. Furthermore, you should also know different fees that include joining fees, renewal fees, late payment fees, processing fees on top of interests, and taxes.
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We all face financial challenges in our current economy, it is nothing to be ashamed of, and the only way to resolve some of the accumulating problems that this begets is to get a sensible and well-researched loan. There are different types of loans you can consider, depending on the type of financial relief you need. The options above can go a long way in helping you recover from most situations. However, you need to shop around to find the best loan out there. It is a good idea to deal with reputable lenders to avoid trouble in the future. You also need to understand the terms of credit before you sign any agreement so that you do not create a cycle of credit or face penalties for late or non-repayment.
